Equity over debt: NRIs see Indian markets as long-term wealth builders, says Harsh Gahlaut

Time of India

4 days ago

In this edition of ETMarkets NRI Talk, we speak with Harsh Gahlaut, Co-founder & CEO of FinEdge, to decode the evolving investment preferences of non-resident Indians.
With a growing number of
NRIs
channeling their money into Indian mutual funds, the trend clearly reflects more than just a quest for returns—it's about long-term conviction in India's economic story.
From emotional ties and strategic asset allocation to the increasing ease of digital investing, Harsh shares insights into why
equity
continues to dominate NRI portfolios, how taxation and regulation shape their decisions, and why India remains a core destination for wealth creation, despite the operational challenges. Edited Excerpts -
Q) NRIs are actively investing in Indian mutual funds. What are some of the key drivers behind this trend?
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A) Several key emotional and strategic factors are at play here. First, there's a deep sense of familiarity and belonging, a kind of anchoring bias, that drives NRIs to invest in India. Despite living abroad, India remains home, and this emotional connection plays a significant role in financial decision-making and investment beliefs.
Second, many NRIs are acutely aware of the Indian growth story. They hear about India's rising global influence and see the potential firsthand, from macroeconomic stability and digital innovation to favourable demographics and long-term GDP prospects. That's something many of them take pretty seriously, and it shows in the way they invest.
Third, for a large number of NRIs, there's a long-term view, whether it's the intention to return, support family members, or simply have a solid financial foothold in India. Mutual funds become a natural choice because they offer professional management, diversification, and alignment with long-term goals, such as retirement, education, or legacy planning.
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Q) How do NRIs navigate the taxation maze, especially under the Double Taxation Avoidance Agreement (DTAA)? Are there common challenges they face?
A) Interestingly, tax efficiency is rarely the primary driver behind NRI investments in India. Most NRIs are driven more by long-term value, familiarity, and strategic diversification than tax efficiency alone. That said, the Double Taxation Avoidance Agreement (DTAA) certainly adds a layer of convenience and clarity. Despite the friction, India continues to hold a firm place in NRI investment portfolios, driven more by belief than by convenience.
Depending on the treaty terms, NRIs may be eligible for reduced tax rates or claim a credit for taxes paid in India against their overseas tax liabilities. For instance, interest income or capital gains earned in India might be subject to lower TDS under DTAA provisions, easing the overall tax impact.
That said, taxation is just one piece of a much larger puzzle. NRIs face a range of other practical challenges, including complex documentation requirements, understanding currency risk, and managing time zone differences when dealing with professionals based in India. In places like the US and Canada, regulatory filters make things even trickier — some mutual funds are simply off the table.
NRIs also rely more heavily on service support, especially when it comes to tasks like KYC, nominee updates, or redemption documentation. For many, a lack of access to a trusted investment expert who can guide them virtually and collaboratively becomes a significant barrier.
Despite these hurdles, most NRIs continue to look at India as a core part of their long-term investment strategy. The connection to home, coupled with India's long-term economic potential, outweighs these operational complexities for many investors.
Q) You mentioned that NRI inflows come mainly from the US, UAE, UK, and Singapore. How do investor preferences differ across these geographies?
A) Interestingly, while these regions differ in culture and regulation, the investment mindset of NRIs across geographies is more similar than different, especially when it comes to long-term wealth creation.
Regardless of where they are based, NRIs today want intelligent visibility into their portfolios and the confidence that someone has their goals mapped out with clarity.
Across the board, we see a firm conviction in India's growth story. Whether it's an NRI in New York, Dubai, London, or Singapore, there is a shared belief in the long-term potential of the Indian economy, and a preference for staying invested with discipline.
Most NRIs are not chasing quick returns. Instead, they're looking for structured, goal-based investing, often with the support of an expert who can offer personalisation and process.
This convergence in mindset likely stems from a few common factors. Many NRIs have global market exposure and, as a result, more rational expectations. Their savings potential, especially in rupee terms, tends to be higher.
At the same time, busy professional lives and time constraints mean they value the presence of a trusted expert who can help them stay on track, manage their portfolios, and navigate life changes without constantly reacting to market noise.
That said, we have noticed subtle preferences in how NRIs engage with investment platforms. In digitally mature
markets
like the US and Singapore, there is a stronger inclination toward platforms that offer complete transparency, real-time portfolio tracking, and guided engagement, not just transactional ease.
That's probably why blended models, where people and tech work together, feel more natural to them.
The ability to collaborate, plan virtually, and review progress through a single seamless interface is something NRIs increasingly expect as part of their investment experience.
Q) What are the most promising sectors in India currently attracting NRI investments, and why are they gaining momentum?
A) While there's often curiosity around sectors, we find that most NRIs aren't sector-chasers in the traditional sense. Their approach tends to be long-term and goal-based rather than tactical or theme-driven.
That said, we do see growing interest in areas that reflect India's structural growth story. Their focus is less on thematic rotations and more on strategies that deliver results quietly over time.
Broadly, sectors such as financial services, infrastructure, technology, and manufacturing, particularly those aligned with the 'Make in India' and capital expenditure (capex) revival narrative, are gaining investor confidence.
We're also seeing some interest in areas like renewable energy and the digital economy, largely thanks to India's momentum in those spaces.
Rather than making concentrated sectoral bets, most NRIs prefer diversified exposure through mutual funds or broader asset allocation strategies. They're usually more measured than domestic investors in responding to short-term market trends.
Many have experienced the downside of being sold the wrong products in the past, especially insurance bundled as an investment. They are now more focused on transparency, cost efficiency, and long-term alignment with their goals.
So, while promising sectors do exist, NRIs are generally not investing with a thematic focus. Their preference is for long-term, resilient strategies that benefit from India's broader economic momentum, rather than timing individual sectors.
Q) How are government initiatives and economic reforms creating new opportunities for NRIs to invest in India?
A) The biggest shift we've seen is how digitalisation has made investing in India far more seamless and location-agnostic. NRIs today can transact, track, and review their investments from anywhere in the world, something that wasn't as easy even a few years ago.
Initiatives like Aadhaar-based KYC, digital signatures, and improved online reporting tools have reduced friction and brought transparency.
That said, there are still operational gaps, especially in areas such as NRI onboarding, KYC updates, bank detail changes, or residency status modifications, which often still require offline intervention. But the intent to resolve these issues is clear, and we're seeing steady progress toward end-to-end digital enablement.
Another important development is the push around GIFT City, which offers NRIs and foreign investors access to certain investment options under a globally competitive tax and regulatory framework.
It's still early days, but as more product innovation and regulatory clarity evolve around GIFT City, it could become a meaningful channel for NRIs seeking efficient India exposure.
To sum it up, India's direction of reform is making it a lot easier and more future-ready for NRIs to invest back home, and the message to global investors, including NRIs, is clear: India is open, evolving, and becoming easier to engage with.
Q) What kind of allocation are NRIs making towards fixed-income instruments like bonds? Are tax-free bonds or government securities gaining traction?
A) For most NRIs, the India opportunity is still viewed through the lens of long-term growth, and that naturally draws them more toward equities. Their core motivation is participation in India's economic trajectory, rather than locking into fixed-income instruments for yield.
We do see fixed-income allocations being made for the purpose of asset diversification or short-term stability. However, tax-free bonds, government securities, or even newer retail products, such as government bonds or T-Bills, have yet to gain widespread traction among NRIs.
They tend to be more relevant in specific cases, for instance, after a property sale, when certain capital gains exemptions are available through infrastructure bonds.
Outside of those instances, NRIs who seek lower-risk exposure often still lean toward traditional options, such as fixed deposits. The familiarity and simplicity appeal to many, even if not the most tax-efficient.
Additionally, for many NRIs, the risk of rupee depreciation is a factor, making long-duration, rupee-denominated
debt
instruments less attractive unless there's a clear tax or regulatory incentive to justify the exposure.
Broadly speaking, equity remains the preferred vehicle for long-term wealth creation, while fixed income continues to play a stabilising role, more complementary than core.